Bitcoin (BTC) has recently surged back to $44,000, reaching a value it had not seen in 19 months. This significant milestone indicates a shift in the crypto market dynamics, painting a much more bullish outlook. On-chain analysis reveals that the current state of the market is vastly different from previous instances when Bitcoin reached this price point.
Previously, in January 2021, $44,000 marked the “absolute zenith of on-chain mania,” according to leading Glassnode analyst James Check. Observing Bitcoin’s “Value Days Destroyed” multiple, a Glassnode metric that detects market overheating or undervaluation, showcased the growing hype. A higher multiple indicated that long-term investors were realizing profits on previously dormant coins. However, spending of these older coins would quickly overpower demand, ultimately leading to the end of bull runs. In January 2021, Bitcoin’s Value Days Destroyed multiple reached an all-time high of approximately 4.25. Currently, the multiple has remained at a modest 1.52, far from its previous record for years. This suggests that HODLers are holding onto their coins and demanding higher prices.
Reflexivity Research co-founder, Will Clemente, shares a similar sentiment, stating that Bitcoin is “far from overvalued based on historic readings.” He points to Bitcoin’s MVRV ratio, another on-chain metric comparing Bitcoin’s market cap to its on-chain realized cap. This ratio provides insight into whether investors are in significant profit and likely to cash out soon. In January 2021, the ratio stood at 3.81, while this week it recorded a more modest 2.07. These figures indicate that Bitcoin is not currently overvalued.
Reasons for Caution and Potential Consolidation
Despite the positive indicators, Glassnode’s James Check calls for caution. In a separate post, he expresses his belief that Bitcoin may consolidate or correct in the near term. This cautious stance reflects a belief that market corrections or periods of consolidation are typical in cryptocurrency price movements.
Bitcoin’s rise to $44,000 represents a 16% increase over the past seven days. However, Glassnode’s Check highlights a major deviation from Bitcoin’s True Mean Market Price, which measures the average price at which investors acquired their current coins. As of Tuesday, the True Mean Market Price stands at $31,231, nearly 40% lower than the market price. In agreement with a commenter, Check suggests that it would be beneficial for Bitcoin to consolidate near $42,000 until the halving. This consolidation phase would allow investor cost bases to readjust above the True Market Mean Price.
The resurgence of Bitcoin to $44,000 after 19 months signifies a changing landscape in the crypto market. The on-chain analysis reveals a more bullish outlook compared to previous instances when Bitcoin reached this price level. The low Value Days Destroyed multiple and the MVRV ratio indicate that investors are not relinquishing their coins, suggesting a demand for higher prices. However, caution is still advised, with potential consolidation or correction anticipated in the near term. As Bitcoin continues to evolve, monitoring on-chain metrics and market dynamics will be crucial for navigating the crypto landscape.